Rann hails victory on BHP royalties

Departing South Australian Premier
Mike Rann
claimed victory yesterday in a battle over royalties with the world’s biggest miner. The state will stick to its Mining Act regime of 5 per cent for uranium and 3.5 per cent for other metals.

The government said this would generate $350 million a year in revenue once the expansion was complete, in today’s dollar terms.

Mr Rann admitted the government had traded off the higher royalty in return for a longer arrangement, locking in the rates for 45 years. The broader indenture agreement runs for 70 years.

The former treasurer, now Minister Assisting the Premier with the Olympic Dam expansion project,
Kevin Foley
, conceded the state’s original demand for all metal smelting and concentrating to be done on site would have been a “prohibitive cost" to BHP, and would have sunk the deal.

“We’ve got to take into account sheer volumes in this project, and the capital costs that would be required for processing the bulk of it in Australia . . .would have been a deal killer," Mr Foley said.

BHP
will have to double its smelting capacity at Olympic Dam to take in 800,000 tonnes a year of copper concentrates, with an expected output of 350,000 tonnes of metal.

“We had to be constructive in allowing BHP to double [processing capacity]," the minister said.

The underground mine has the capacity to produce about 200,000 tonnes of copper, 100,000 ounces of gold and 4000 tonnes of uranium a year.

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Existing facilities could be upgraded to add 35,000 tonnes of copper and 500 tonnes of uranium as more ore becomes available from the open pit.

Deutsche Bank analyst Paul Young said the agreement was not “overly positive" for BHP as it appeared to indicate the company would have to keep its smelter going, as well as boost concentrating capacity.

“The economics would be much better for them to put all the power into their concentrating and let the Chinese do the smelting," Mr Young said.

Mr Foley said he hoped any expansion beyond the targeted 750,000 tonnes a year of copper, 19,000 tonnes of uranium and 800,000 ounces of gold – which would require a new state agreement – would look to boost the level of local processing.

The Greens member of the South Australian Parliament,
Mark Parnell
, said the agreement gave BHP permission to export jobs.

“The thing is the new ore or additional ore," he said. “The vast bulk of that is going over to China and with it the vast bulk of the jobs."

Mr Rann, who is to stand down as Premier on October 20, said the government had refused to budge on royalties despite strong demands from BHP for a concessional rate usually offered to entice new mining projects to the state.

Mr Rann said BHP had “sought with great vigour" to get a royalty reduction.

The West Australian government granted both BHP and Rio Tinto concessional royalties when they established the Pilbara iron ore mines in the 1960s as a reward for bringing sizeable investment to the state.

Mr Foley said the rates were on par with those of other projects. “A long-term royalty rate of 5 per cent for uranium and 3.5 per cent for other metals is consistent with the royalty regime set out in the state’s Mining Act," he said.

“We are not cutting royalty rates to get this project up and running."

Mr Young said BHP’s decision to approve $US1.2 billion in spending on long lead time items yesterday could be taken as a sign that the miner was comfortable with the royalty rates, even though they had not been lowered.

Mr Parnell criticised the 45-year royalty agreement, which Mr Rann had claimed would give BHP the certainty it needed given the expected size of the investment and the amount of time it would take before BHP received any return on its investment.

Mr Parnell said the Greens would oppose locking in the royalty rates for such a long period.

“That is outrageous," he said.

“We don’t need to lock in the royalty rates for 40 years in order to provide business certainty."

He said that although the Greens did not support uranium mining, they did not oppose mining for other minerals such as copper and gold – provided it was done under the appropriate conditions.